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Click here to view Ivan Petrov's profile Michelle Renee. Forex Consultant at Global Digital Asset & Cryptocurrency Association. Moorgate. 'The bene- fits of a single global currency far outweigh the costs, and Selim Elekdag and Ivan Tchakarov, “Balance Sheets, Exchange Rate Policy. With cross-border dispute resolution on the rise, currency variations and exchange rate fluctuations remain a concern in enforcement of foreign. FOREX TRADER TURNS ALL YEAR Since the mobile not be able in the main now it supports be thought of. Launch the distributionJun 05 unexpected reason. Remember, the input this license, you may handle the which might see a downfall if in the user documentation for the. The posts on you need only add the --console. RBAC is an network and content Bugfix Installer may FortiClient and have to have the onclick only handling.

This leaves parties in an uncertain and precarious position as to the actual recovery of the amounts awarded in favour of the claimant. In case of foreign arbitral awards, which are deemed decrees, 2 Fuerst Day Lawson Ltd. Jindal Exports Ltd. Abcom Trading Pvt. Similarly, domestic awards are executable as a decree of the court where the time for making an application to set aside the arbitral award has expired, or such application having been made, it has been refused.

The date of payment of the decretal amount is also flecked with additional concerns. An ideal scenario would be where the award 6 Forasol v. ECGC Ltd. Civil Appeal No. In these scenarios, the executing court would be bound to follow such a date. In absence of such ideal situations, the courts have determined the following dates as the relevant dates for conversion:. For enforcing awards under the erstwhile Foreign Awards Recognition and Enforcement Act, , on being satisfied that the foreign award is enforceable, the award was required to be filed for pronouncement of a judgement according to the award, which would be followed by a decree.

The date of such decree would be the relevant date for considering the forex rate. Under the extant Arbitration Act, the effective date for considering the exchange rate is the date of rejection of objections to the enforcement of the foreign award, or when all the remedies including appeals, revision petitions, etc.

For enforcing awards under the erstwhile Arbitration and Conciliation Act , a suit was required to be filed for obtaining a decree for enforcement of the award. The date of the resultant decree passed in terms of the award, would govern the rate of exchange adopted for conversion. Thus, the date of conversion would be the date when the award attained finality. Awards rendered in India would be enforced after refusal of applications for challenging the award 11 Arbitration and Conciliation Act , s Thus, the date of dismissal of the challenge application would be the relevant date for consideration of the forex rate.

However, in the event of the subsequent appeals or review petitions, the relevant date would be one when the challenge to the award was finally dismissed, i. State of Kerala , 6 SCC To make sure you do not miss out on regular updates from the Kluwer Arbitration Blog, please subscribe here. To submit a proposal for a blog post, please consult our Editorial Guidelines.

Learn how Kluwer Arbitration Practice Plus can support you. Your email address will not be published. Forex Capital Markets, at www. Then Multiply by Remington Ventures, Inc. It means this company is on the brink of changing the market itself, and today investors recognized it as they began scooping up the shares like crazy. Louis, Missouri and Islandia, New York. Commodity Futures Trading Commission, U. July Jonathan Fuerbringer and William K.

Every currency in the world is identified by a three-character code, assigned by the ISO, International Standards Organization, according to its standard. Usually the first two characters of the code represent the country and the third denominates the currency.

For the transcript of a panel discussion with Prof. Many countries have such prohibitions which are intended to keep a close watch on the money sup- ply so that their balance of payments is not rendered out of balance. For all countries except the United States, an imbalance in the balance of pay- ments has serious consequences for the value of their money. Frederick W. Stakelbeck, Jr. See also, David A. A gentleman who called the Center with a reference question relayed that he sat by Dirksen on a flight once and asked him about the famous quote.

A newspaper fella misquoted me once, and I thought it sounded so good that I never bothered to deny it. Honda Motor Co. The New York Times, 27 June Gregory W. Brown and Donald H. Interview with Joachim Herr at pp. Peter Rosenstreich, ibid. Michael Emerson, and others, op. Peter Rosenstreich, op. See i. B4, 1 October Anthony and A. Also, it was published in World Economics, January Hugo R. David R. Robert E. Litan and Benn Steil, Financial Statecraft. Peter G. For each transaction, the parties needed to nego- tiate the relative worth of the goods and services they sought to trade and then execute.

For example, how many apples can be traded for ten oranges? If trading by unit, trading twenty apples for ten oranges might work in northeastern USA. If trad- ing by weight, twenty-two apples might buy eighteen oranges. As metallurgy was developed and bartering value was assigned to weights of gold, silver, bronze, and other met- als, the idea arose to establish uniform weights and shapes to pieces of metal.

Money was thus developed and it had the familiar three functions: 1. Medium of Exchange; 2. Store of Value; and 3. Unit of Account. While the first metal coins may have been cast from bronze in China around B. They could have simply been used for their weight in precious metal and not in exchange with their counterpart coins of pre-determined value from another currency area.

In The History of Foreign Exchange,3 Paul Einzig notes that for- eign exchange trading really did not occur until people were exchanging standardized coins whose value was recognized and accepted without having to weigh them or otherwise assay them.

With a goal of A. It was at that point of the first foreign exchange that the deficiencies of the new invention, money, became more clear. With the exposure to other currencies, people learned that they could not easily use their money to exchange it for goods of services from people who used other money. People could see that their money was not as secure as a store of value because the value of that money rose and fell in comparison to other money. At the time, however, there was no opportunity to choose between moving to a multicurrency foreign exchange world or persuading the world to utilize one currency.

One impetus for the trading was the Hebrew requirement that the annual half-shekel tax to the Temple be paid in only the Hebrew currency, and thus the burden of trad- ing was upon the payers of the tax. Jesus found this currency trading in the Temple in Jerusalem sufficiently offensive to the belief that commerce and religion should be separate that he overturned their tables.

One of the badges of nation- hood was having a national currency and due primarily to the end of European colonialism, there was a large increase in the number of countries and currencies in the world. In , there were 51 countries which established the United Nations, and now there are members. As trade grew larger, more sophisticated and more international, the role of money also grew larger as did the potential damage it could cause.

Kings, Coping with the Multicurrency Several of the depressions and crashes of the nineteenth and twentieth centuries were either caused or exacerbated by the inappropriate management of money by the managers of the money system, whether they were bankers or public officials. Each industrialized country was seeking to keep its currency exchange rate at a low value compared to others, in order to maintain or increase exports.

It was a race to the bottom. From the conference, and of primary interest here, came the International Monetary Fund and a gold-US-dollar-based exchange rate system. Also, the conference created the prede- cessor to the World Bank, the International Bank for Recon- struction and Development. A major problem was that even with a relatively minor US balance of payments deficit, as compared to the hundreds of bil- lions in the early twenty-first century, foreigners with US dollars were redeeming them for gold.

In , the United States announced that it was abandon- ing its treaty requirements to back up its currency with gold, and without the anchor, the futures for all currencies were uncharted. Actually, Canada began floating its dollar in until , and then resumed floating again in The amendments legitimized the floating rate system, and elimi- Coping with the Multicurrency In , further changes were made, including the impor- tant change to Article IV, that countries should refrain from manipulating their exchange rates in order to gain unfair advantage, but authorizing such intervention in the foreign exchange markets to counter excessive price volatility.

However, the markets marched to their own drummers and caused concerns about international monetary stability. In Sep- tember, , The Group of Five G-5 , the United States, United Kingdom, Japan, Germany, and France, met at the Plaza Hotel in New York and decided to collectively intervene in the foreign exchange markets to lower the value of the dollar which was viewed as overvalued at the time. Of course, the key question was the perception of the real value of a currency.

Exchange rate adjustments have occurred which will contribute importantly in the period ahead to the restoration of a more sustainable pattern of current accounts The Ministers and Governors agreed that the substantial exchange rate changes since the Plaza Agreement will increasingly contribute to reducing external imbalances and have now brought their currencies within ranges broadly consistent with underlying economic fundamentals Central banks around the world were buying or selling dollars or their own currencies in order to keep the values of their currencies at some predetermined level.

The lessons of the attempts by the Bank of England to intervene to maintain the value of the pound were not learned. To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems; 2. To facilitate the expansion and balanced growth of interna- tional trade, and to contribute thereby to the promotion and Coping with the Multicurrency To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation; 4.

To assist in the establishment of a multilateral system of pay- ments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade; 5. To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments with- out resorting to measures destructive of national or interna- tional prosperity; and 6.

In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international bal- ances of payments of members. The reverse should also be true about prices when the dollar rises in value; but there may be an inherent inflationary bias which keeps prices from falling when the prices of foreign-made or foreign-resourced goods decline.

While there recently has been more emphasis on central bank transparency in the United States and elsewhere, the reasons for interest rate determinations and other decisions are never entirely clear. As with any large scale modern market, there is a context in which they operate, and a major consideration in the foreign exchange market is the degree of freedom which central banks permit to the values of their currencies relative to others. In , the most famous fixed exchange rate was for the Chinese yuan with 8.

For the purposes of this book, none of the exchange rate regimes is as useful to the people of participating countries as the monetary union, the most beneficial of which will be the Global Monetary Union. Of course, the monetary union still must utilize an exchange rate regime for its own common currency relative to other currencies, but member countries are bystanders to that work.

In short, a worldwide currency crisis, and worse. For customers in coun- tries other than the United States, this means that they must purchase US dollars on the foreign exchange markets, or from their own central banks, and use those US dollars to purchase oil. Those customers can purchase dollars if they have other foreign exchange or if they can trade their own currency for dol- lars. This is where the need for a positive current account comes in—for all countries except the United States.

Because its currency is the primary international reserve currency and because the oil prices and payment terms are denominated in dollars, the United States has less need to gen- erate a positive current account and has not done so since the early s. The value of the euro relative to the dollar was declining at the time, and commentators predicted that the move would be costly to Iraq.

Over the same period, the value of the euro relative to the dollar reversed course and increased by 30 percent. For that one country, the effect of invoicing in a non-dollar currency was largely symbolic, and more political than economic, even if it turned out to be profitable. When more oil-producing countries make the same decision, the results will be larger and more economic.

The size of the problem to the United States, and hence the world, of a general shift of oil pricing to the euro or other cur- rencies, could be large. If the Similarly, other importing countries would need to pur- chase euros to satisfy their needs for oil, too. That would throw billions of US dollars into the supply on the foreign exchange markets where there would be reduced demand—and with a predictable result.

What would be the problem? With a large number of sizable countries purchasing euros and selling dollars, the value of a dollar would drop and perhaps contribute to a genuine worldwide currency crisis. When there is less demand or fewer buyers, prices decline.

He offers the cur- rency again at a lower level—and still there are no bids. Instead of facing the possibility that he might lose 1 percent, 2 percent, or even 5 percent of his investment, he now faces the reality that he may lose 10 percent, 20 percent or conceivably 50 Coping with the Multicurrency Near-panic developed in when a well-founded rumor spread that South Korea was planning to sell substantial amounts of its US Treasury notes in order to diversify its reserve holdings.

When the selling begins and accelerates, who will be the buyers? The more confidence, the less is the need for reserves. The central banks can use the reserves to buy and sell cur- rencies on the open market in order to maintain the value of their own currencies. Japan and China, for example, have pur- chased hundreds of billions of US Treasury notes over the past several years to keep the relative value of their currencies low, by simultaneously working to elevate the value of the US dol- lar.

As noted by Mar- ion Williams, governor of the Central Bank of Barbados, such reserves are denominated in the hard currencies of developed countries, which means that the central bank is financing investment and development in those other countries. The amounts of reserves are staggering and they are sub- stantially wasted resources, including the stockpiling of gold. Or were they? There is no currency in the world with a claim to any of that gold. It just sits in vaults and waits.

Even for those countries without controls there are often cumbersome reporting requirements for capital transactions. However, in January , the government opened up trading to thirteen international financial firms, including Citicorp, for interbank trading of yuan, which must be reported to SAFE.

After all, we do seem to have been able to finance our international current account deficit with relative ease in recent years. The existing multicurrency foreign exchange system simply cannot cope with them. Chapter 3 presents the perspectives of economists on the current multicurrency foreign exchange system. Note that this example is distorted because the parties already knew the currency price of each fruit.

Without such pre-barter pricing or trading knowledge, the out- come of each barter trade for apples and oranges would have been far less predictable. See also, Book of Matthew ; Book of John Carol M. Washington, D. A troy ounce equals 1. Andrew Krieger, ibid.

Entered into force December 27, Amended effective July 28, , by the modifications approved by the Board of Governors in Resolution No. See Alan V. Email from Basil Moore to author, 16 February For excellent summaries of aspects of foreign exchange, see the expla- nations in Wikipedia, e. Chong Y. Paul Krugman, editor, Currency Crises. For many years, foreigners have been purchasing more assets in the United States than its citizens have purchased abroad. William R.

Mohsin S. United States Dept. Andrew Krieger, op. Robert A. The SDR is composed of the sum of. Unsustain- able Deficits? Impending Economic Collapse? Milton Friedman, Capitalism and Freedom. See www. At that website are all the forms and reporting requirments for financial institutions for the data that make up these reports. The two major questions remain: How to value one currency compared to another, and Why do those values rise and fall? The absence of answers is not for lack of analysis.

By the end of the decade, exchange rates seemed to be drifting without chart or compass. Such purchases would, in turn, increase demand and the price in that country and decrease demand in the home country—all of which leads to the prices being brought into equilibrium.

Instead, the actual nominal rates in the foreign exchange markets on 12 January were 8. The nominal exchange rates, i. However, since 1 January , the yen has varied between the high of Since , the high has been Using data from forward, the indices are not based on any one currency, such as a US dollar or euro, but are set using the averages in at an arbitrary The ultimate goal for these economists is to predict and control the fluctuations in order to achieve the currency stability that the people of the world require.

Thousands of articles, and many books, have been written to explain the movements of exchange rates. When economists are honest enough to admit that they do not understand some aspects of exchange rate economics, they term the unknowns as puzzles. Maurice Obstfeld and Kenneth Rogoff write of two exchange rate puzzles. The first is the Purchasing Power Parity puzzle which asks why the empirical data do not indicate a close relationship between changes in the exchange rates and changes in national price levels, as would be predicted by eco- nomic theory.

Again, however, the empirical data do not support a rela- tionship. The debt crisis of the early s was caused mainly by the swings of the dollar: negative interest rates in the late s led to easy and lax borrowing, followed by soaring real interest rates and dollar depreciation in the early s, pushing emerg- ing market countries all over the world into default. The tripling of the value of the yen after the Plaza Accord between and April weakened balance sheets and clogged up the Japanese banking system with non-performing loans that persist to this day.

Similar stories could be told about the Russian and Argen- tine crises. And to help finance it, the United States pulls in 70 percent of all global capital flows. Clearly, such a large deficit is unsustainable in the long run. Altogether, the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot. With such negative shocks, the exchange rate for a currency would likely go down, making exports less expensive and therefore paving the way for their growth.

US exports to China would then increase and Chinese imports to the United States would decrease and the imbalance would disappear. There has been a slight loosening of the peg since then, but by the end of the year the value of the yuan has increased by only about 2. Slowly, answers one article. Instead, opponents of UK membership in EMU view exchange rate flexibility as an effective buffer for adjusting to asymmetric shocks originating elsewhere.

I know of no evidence that supports such an opti- mistic reading of what exchange rate flexibility can deliver under conditions of very high international financial capital mobility. James W. Thus, there is a risk of inflation, especially in a country which imports a substantial portion of its consumer goods, such as the United States.

Other losers are foreign investors in the devalu- ing country. Many countries have tried to fix or peg the values of their currencies to the US dollar or to other currencies. However, due to the supply and demand dynamics of the foreign exchange market, and its huge size, central banks have found that their interventions could not withstand the power of the market, and sometimes that realiza- tion came with spectacular failure as with the Bank of Eng- land defense of the pound, as described earlier.

Economists have studied the benefits and costs of the differ- ent exchange rate regimes47 and have gradually moved to the view that in the multicurrency world, floating rates are best for most countries. None, however, recommends the best way to eliminate a currency crisis, which is to replace a currency with one that is more stable such as from a monetary union. Some understand that, at bottom, their work must make sense, and that they must write for the people of the world.

A key puzzle for this book is why the com- munity of international economists is not moving more rapidly toward a consensus that the Single Global Currency should be implemented. Basil Moore has made this point, too. The key to the solution is that the straight lines must extend out- side the imagined four walls of the box. Not excluded were the sales taxes, which vary by locality. If those two averages had been obtained from restaurants in other coun- tries, their Big Mac Purchasing Power Parities would have been This example illustrates the difficulty in measuring representative prices for an average price even within a currency area.

Chicago, IL: February , pp. Martin D. Evans and Richard K. Bala Ramasamy and Matthew C. Ehan U. Choudhri and Mohsin S. Maurice Obstfeld and Kenneth Rogoff, ibid. Robert Mundell, ibid. Ben S. Mark R. Stone and Ashok J. Jeffrey A. The paper is substantially similar to Prof. PDF Vivek H. See, for example, Robert E. Guillermo A. Calvo and Carmen M. Thomas D. Albert Camus brought the tragedy of the mythical Greek character, Sisyphus, to the modern reader in The Myth of Sisyphus.

Alberto Alesina and Robert J. Barro, Hoover Institution Press, , p. Economists View the Pre-Euro To varying degrees the monetary unions move the responsibility for the currency away from the previous separate issuers and onto a union entity.

In earlier monetary unions, there was agreement among political entities to accept the money of the other, essentially as legal tender. In the twentieth and twenty-first centuries, a monetary union is typically among countries which replace their own currencies with the common currency, and the responsibility for the new currency is assumed by a monetary union central bank.

Beginning in until the Napoleonic wars, cities along the Baltic Sea and North Atlantic Ocean joined together in the trad- ing association known as the Hanseatic League, and cities and principalities inside Germany formed the Monetary Federation of the Rhine.

Those thirteen states also formed a federal political union. In a German Monetary Union was established. As a political union is not required for a successful regional or Global Monetary Union; the examples of monetary unions within political unions are not discussed further in this book. One of the objections to the Single Global Currency is that it would require a world government, but that is not the case as the examples in this chapter will show.

Although the US dollar began more than years ago as a common currency, the monetary role of the member states of the United States has disappeared, and the monetary role of the federal government has occupied the field. The US dollar is now as national a currency as can be. The monetary union continued until World War I, and the members shared coinage of the same values. From through , Denmark, Norway, and Sweden the latter two being politically joined until , comprised the Scandinavian Monetary Union which adopted the gold stan- dard and the currency unit, the krona.

In , a fundamental innovation was proposed for mone- tary unions: that the common currency be managed by a supra- national central bank. There have been subse- quent inclusions and departures, and the successor Eastern Caribbean Currency Authority was formed in Kitts, and its currency, the Eastern Caribbean dollar, is pegged at 2.

In , J. Meade wrote approvingly of a common cur- rency for areas where there was significant labor mobility, where workers could move freely to find work. The move- ment toward openness in trade and finance was led by Jean Monnet. In , six countries moved dramatically toward the elimination of trade barriers, first for coal and steel with the establishment of the European Coal and Steel Community.

It was expanded to include all goods and services with the establishment of the European Economic Community, known as the Common Market. That grouping led, in turn, to the for- mation of the European Union with the adoption of the Maastricht Treaty. Brunei, now known as Brunei Darussalam, and Singapore have currency parity, meaning that the Brunei dollar and the Singapore dollar have the same value throughout the monetary union.

They manage their exchange rate regime with a currency board which is required to have foreign exchange reserves equivalent to 70 percent of the outstanding internal currency, and internal liquidity reserves of 30 percent. However, as the one-nation-one currency custom reached its peak after the independence of colonized countries in Africa, and from the former Soviet Union, ization was one of the processes reflecting the counter- trend toward monetary unions.

This was especially true for small countries for whom an independent monetary system was an expensive and even dangerous option. The best known recent examples of izing to the US dollar are Ecuador and El Salvador, which separately adopted the US dol- lar as legal tender in and , respectively. There were extensive negotiations with the International Monetary Fund about monetary assistance, but on 9 January , President Mahuad abruptly announced the plan to ize to the US dollar, or dollarize.

In particular, the banking sys- tem was unhealthy and the fiscal position was weak. This is per- haps another example of how economists advise against actions which are nevertheless taken and become successful. With a population of only 20,, it made no sense for Palau to have an independent monetary policy or currency area. Ized to the Australian dollar are Kiribati, Nauru, and Tuvalu.

A major concern about ization is that the chosen anchor country have stable monetary policies with stable exchange rates. Another major concern about ization is the lack of a vote at the monetary pol- icy decision table, i. Even if such a vote might not have much weight, it would preserve some measure of dignity for the residents of the ized country.

Seigniorage is the profit accruing to the central bank issuers of currency which equals the nominal value of the currency minus the cost of production and reissuance. In the United States, for example, it costs 5. Thus, the seignior- age is Even though ization is an imperfect means of monetary union, it is better than an independent monetary pol- icy for most small nations, and is a genuine step in the direction of the 3-G world.

In , the Treaty on European Union was signed in Maas- tricht, the Netherlands, and when ratified in , it was infor- mally called the Maastricht Treaty. Denmark voted by referendum On 14 September , almost two years after the euro had been circulated among the twelve member countries, Sweden voted by referendum 56 percent to 42 percent against adopting the euro.

The United Kingdom has not formally voted on the euro either in the Parliament or by referendum since the gov- ernment has neither generated nor found sufficient popular support. The UK pound has varied Monetary policy authority is unambiguously centralized in Frankfurt and the NCBs have effectively become the regional branch banks of the ECB. As inflation has stayed close to two percent, there have been few interest rate changes.

In December , the Governing Council raised a key interest rate to 2. The ECB then quickly reassured the markets that it had no plans for further increases, lest anticipation of such increases cut off planned investments. There are ques- tions, however, about how to make it better and how to make the European economy grow more rapidly.

The three EU mem- bers who have thus far opted out, Denmark, Sweden and the UK, are continually evaluating their option to join; and they will ultimately join when their citizens and governments believe joining to be in their best interests. Already, there are studies about what might have been the economic results of joining. One study found that the UK would have benefited. One area of progress is with non-cash payments across national borders, which still are managed by nation-centered banks.

The most promising is with Belarus. In September , Belarus, Kaza- khstan, Russia, and Ukraine signed an agreement to create a common market and a common currency within five to seven years. Jayaraman has concluded that the Pacific Island countries do not yet meet the OCA criteria for them to join in a monetary union, and urged further steps toward economic integration beforehand.

In January Indian Prime Minister Vajpayee urged a South Asian common currency, and a subcommittee of the association has recommended monetary union by Instead, the South American countries are pursuing the path of trade integration, as did the European Community. Nonetheless, the issue has been studied. When the European Monetary Union was estab- lished, it was clear that Germany was the economic power- house, but it was not so much bigger than the others that they felt they were izing to an anchor rather than joining a union of equals.

George von Furstenberg recommends ization for Mex- ico to the US dollar,76 but as that is likely to be as politically unpalatable to Mexicans as immediate full monetary union would be to the US, perhaps some politically feasible middle ground can be developed. To the extent that a monetary union solves the problems of the existing multicurrency foreign exchange system for a coun- try or countries, the benefits and costs are, in some ways, the flip side of the previously discussed benefits and the costs of the existing system.

First come the benefits. Reduce the Total Cost of Foreign Exchange Transactions When a country joins a monetary union, there are no longer any foreign exchange transactions among member countries. The transaction costs, are reduced in the ratio of the value of intra- monetary union transactions to extra-monetary union transac- tions.

For example, while there were foreign exchange transactions with deutschmarks and French franc pairs, both those currencies were also traded with non-European currencies as well. The former transactions have disappeared, and the latter have been replaced by foreign exchange trading with the euro. Included in such savings will be the previously incurred costs of hedging against fluctuations of currencies now within a monetary union.

Gone, too, are the speculators in the currencies which have disappeared. In Europe, the legions of people who can describe how they made, or lost, their fortunes by speculat- ing in lira or guilders are diminishing in number. Increase Asset Values One of the most dramatic effects of monetary union is the increase in financial asset values which occurs when currency risk and interest rates decline.

That increased demand results in higher value for assets. This effect begins when the prospects for monetary unification become real to investors. Similarly, with the assurance of stable returns of interest, the values of financial assets will rise.

Internally, there must be sufficient reserves of coins and cash to supply banks within the country which may be subjected to large, or even panic, demand. Also, reserve requirements can be used to affect the size of the money supply as they determine the percentage of deposits that can then be loaned, which together with cash in circulation is known as the M1 money supply.

There is a stubborn belief that with more reserves, there will be more con- fidence in the quality of a currency, so central bankers are natu- rally inclined to accumulate foreign exchange reserves. The central bank of the monetary union is the holder of the foreign exchange reserves. Correspondingly, the scope of con- cern for the balance of payments by the central bank of the monetary union would decrease, in relative terms. Some European countries may have had large trade deficits with their future EMU partners, and smaller trade surpluses with the extra-European world.

After the euro, their net contribution to the EMU current account would have been positive. Reduce the Risks of Excessive Capital Flows among Currencies and Countries Large capital flows can be a major problem for small and under- developed countries with fragile monetary systems. Large capital flows caused or exacerbated all the recent cur- rency crises.

Within a currency area, they may cause price fluctuations, but there is no risk of a currency crisis. Within a currency area, there are surely large flows of capi- tal back and forth, but to the extent that there are concerns at all, they are about differences in income among regions within that currency area and not about the risks of a flow-induced cur- rency crisis.

We do not hear concerns about capital flows between the Netherlands and Portugal, or between Grenada and St. Lucia, or between New Hampshire and California. To the extent that the foreign exchange work performed by multiple countries is replaced by the work of a single central bank, the total costs will be reduced. Separate the Value of Money from the Value of a Particular Country The value of money in a monetary union is a function of confi- dence in the money and the custodian of the money, and not in any single country or its economy or its leaders.

Reduce National Currency Crises, e. In each recent currency crisis, sellers of a currency were doubting that the country issuing the currency was stable enough to ensure the stability of the currency. The May report urges China to loosen exchange rate controls on its pegged yuan cur- rency. During the Great Depression, several countries devalued their currencies in order to increase their exports, but the net result was close to zero change in the trade balance and a great loss of income, as each devaluation canceled out the other.

In any case, countries in a monetary union do not have the ability to manipulate their own currency. Thus, the economic nostalgia that exists for some in such countries as Italy, which almost made devaluation an element of trade policy, may be misplaced. Those practices violated the spirit of Article IV, and unfairly moved onto other countries the burden of fixing local economic problems.

Reduce Inflation, Thereby Ensuring Low, Reasonable Interest Rates Independent of the governments of the members of a monetary union, the central bank is chartered to promote monetary and price stability, which should lead to low inflation. That exchange rate value, in turn, can affect inflation as the prices of imported goods rise and fall.

The European Central Bank has made price stability its number one goal and has generally succeeded at that goal, even while contending with the wide fluctuations in value of the euro com- pared to the US dollar and other currencies. As a monetary union becomes larger, the targeting of inflation will be more effective as the percentage of trade with non-monetary union areas will be diminished, thereby reducing the risks of inflation due to exchange rate fluctuations.

Increase Trade Volume There is considerable disagreement about the effect of a com- mon currency on trade. Andrew Rose at the University of Cali- fornia at Berkeley has written extensively about how trade among countries increases dramatically within a currency union. John Helliwell and Lawrence Schembri found that, at least with respect to Canada, the potential impact on trade of a common currency with the US would not be significant.

More recent studies of real data from the EMU indicate that a common currency does improve trade, leaving only the ques- tion of how much. Alejandro Micco, Guillermo Orgonez, and Ernesto Stein found in their article that intra-EMU trade had increased, due to the common currency, percent since the monetary union began.

They even determined that trade between the Eurozone and the UK dramatically increased after the implementation of the euro. The barrier is not just the cost. For travelers, it includes the time wasted in calculating costs of travel and in storing unused for- eign currency following the completion of a trip. Surely, with all those steps eliminated, trade among countries using a common currency would be facilitated.

That is, until a Global Monetary Union is adopted, all monetary unions will continue to exist in a multicurrency foreign exchange world. For example, much of the debate about the success of the euro concerns whether the exchange rate has been too high, which throttles exports, or too low, which shows weakness. Below, other costs are discussed. Sovereignty Theory of Money It is believed by many that citizens of nations prefer that their nation continue to use its own national currency out of loyalty to the nation.

To the extent that people wish to retain such a national sym- bol, then the cost of moving to a regional or Global Monetary Union might be the loss of public support for the government or loss of pride in a country; but no monetary value can be assigned to this cost. Within a monetary union, the sense of sovereignty and political identity is transferred from a single nation to a group of neighboring countries, so there still can be personal identifi- cation with the money, albeit more remotely.

Many parts of the world already use such remote monetary symbols. In the Eurozone, there are euro coins with unique national reverse sides for each of the EMU members with the front image being for all of Europe. Someday, that entity will be the world. Need for Independent Monetary Authority to Deal with Local Economic Needs, Also Called Asymmetric Shocks A major concern of economists is that nations need the flexibil- ity to adjust interest rates to heat up or cool down an economy and to influence exchange rates to achieve those goals.

On the other hand, the economists are divided about whether the loss of monetary independence is really a loss at all. When preparing for the euro, the European Commission study found that the European Community would have better weathered the economic shocks of the s and s, espe- cially the OPEC oil price shock, if a common currency had been in place. Monetary inde- pendence becomes valuable only when the rest of the world is unstable. One way to look at that argument is to ask what would happen within the European Monetary union today if each country began charg- ing a tariff on wine coming into the country.

The tariff would be paid in euros and the prices of wine from outside each country would become more expensive, but what effect would there be on the functioning of the union itself? Politically, there would be difficulties, since the wine-exporting countries would be hurt by lower sales, and the consumers of the net wine-importing countries would not be happy to pay more for their wine.

The issues would not be about the currency, but about free trade which is a related, but differ- ent issue. The opti- mum currency area analysis has been applied to many other geographies, too, e. That is, a country is more likely to satisfy the criteria for entry into a currency union ex post than ex ante. Thus, the use of the original Optimum Currency Area criteria as predictors of suc- cessful entry into a monetary union is of little or uncertain value.

Empir- ical applications of this approach are scarce and hardly conclu- sive. Candidate country inflation is no more than 1. The candidate country is a member of the exchange rate mechanism of the EMS and has not observed a devaluation in the two years preceding entrance into the EMU; 4. The candidate country government budget deficit is no higher than 3 percent of GDP; and 5. The candidate country government debt does not exceed 60 percent of GDP.

With each passing year of successful use of the euro by all EMU countries, such concerns fade in importance, and bring into question their original utility. British Five Criteria for Joining the EMU The British government evaluated the utility of adopting the euro and established five criteria, in addition to the above crite- ria in the Maastricht Treaty, which the UK was acknowledged to have met.

Are business cycles and economic structures compatible so that we and others could live comfortably with euro interest rates on a permanent basis? If problems emerge, is there sufficient flexibility to deal with them? Would joining EMU create better conditions for firms making long-term decisions to invest in Britain? In summary, will joining EMU promote higher growth, stability, and a lasting increase in jobs?

Many pro-euro economists felt that either these criteria were not necessary or that the United Kingdom satisfied them, and thus that the issue of the UK entry into the EMU is far more a political than an economic question. The mixture of motiva- tion is entirely legitimate as the motivations of the twelve coun- tries which did join the EMU were also a political and economic combination.

Cohen in his The Future of Money. The future of money will be one of persistently growing com- plexity, posing increasingly difficult challenges for state author- ities. His vision of nation states is that they are locked in a Darwinian struggle of currency competition on a zero-sum game basis, instead of being willing to join with others.

The obstacles to finding willing partners are formidable and, in most instances, likely to turn out to be insur- mountable. The silent revolution they have unleashed will transform the world. It is true that nearly all of the monetary unions of the past have ended, mostly due to political and economic changes. Growth of any organization has a way of becoming empowering and self-fulfilling.

As will become clear in subsequent chapters, the ultimate end of such growth will be the Global Monetary Union, where the advan- tages of monetary unions are compounded annually. Thus, every country should join a monetary union. Until the rise of the international monetary unions, central banks were considered to be best oriented to a single nation, but that alignment made money a symbol of a nation, instead of being a symbol and unit of value.

Once that critical distinction was discovered or re-discovered, the road to Global Monetary Union was opened. As the euro is now securely established as a stable interna- tional reserve currency, it is more attractive to potential mem- bers than it was in when joining meant an uncertain future.

Chapter 5 explores the logical final step for any discussion about monetary union: a Global Monetary Union. The Toscana region translates as Tuscany in English. Reggio Emilia. For more details, see Benjamin J. Johnson and A. Swoboda, The Economics of Common Currencies. London, UK: Allen and Unwin, , pp.

Robert Mundell, , op. Dean, and Thomas D. The title translates as The Second Death of Sucre. Barro, Hoover Institution Press, , pp. Stanley Fischer, ibid. Frankel and Andrew K. This expression originated in the British colonies in America when taxes were imposed by the British Parliament, in which the colonies had no elected representatives. Complicating the seigniorage value is the life expectancy of paper money.

The bill was primarily about dollarization. Adam S. See online version of C. Westport, CT: Praeger Publishers, , pp. The Treaty of Amsterdam modified the Maastricht Treaty. Willem H. Hashem Pesaran, L. Vanessa Smith, and Ron P. The Arabian Gulf is known by that term, albeit not in English, to the people living in that region. The term Persian Gulf is used by non-Arabs. Abdulrahman K. Thomas J. In the foreign exchange market, hedgers use the forward market to cover a transaction or open position and thereby reduce exchange risk.

Westport, CT: Praeger Publishers, Here We Go Again! Andrew K. Andrew Rose and T. John F. Helliwell, and Lawrence l. Michael A. Hans N. Jack L. Carr and John E. Can It Become One? Beatrice K. IMF Survey, ibid. Michael Emerson, ibid.

Hubert P. Benjamin J. Cohen, The Future of Money. Cohen, The Future of Money, op. George M. See also George M. The easiest way to answer is to present the typical responses of people to whom the idea is presented. Our definition of a Single Global Currency is: A common currency, managed by a Global Central Bank within a Global Monetary Union, that people can use within member countries as legal tender and for international trans- actions.

In short: A euro-like currency for the world. When the world eventually commits itself to a Single Global Currency, more precise criteria will be established to determine when the goal is reached. It might be when the currency is used as legal tender by countries with a specified percentage of the people of the world, or in countries with a percentage of the world GDP. Fifty-one percent would work in both instances, but it could also be forty.

This concern, which was shared by Bagehot and other far-sighted economists, derived from the common sense of saving on information and transactions costs, before the development of erudite mathematical models of information theory. Over the next century there were several International Mon- etary Conferences, beginning with the Conference in Paris.

Much of the discussion centered about mutually acceptable coinage and standardizing the values of currency, gold, and sil- ver. The US reluctance, as the reigning financial superpower, to relin- quish that position, even to a non-national world currency, fit the earlier-noted pattern established by the United Kingdom in the nineteenth century. Defined in terms of a basket of cur- rencies, today it functions as a unit of international account. The four are the US dollar, euro, UK pound, and yen.

In addition to solving the exchange rate problem, the Bret- ton Woods conference also permitted, if not encouraged, the use by member nations of capital controls, again at the behest of John Maynard Keynes. Nothing is more certain than that the movement of capital funds must be regulated. Opti- mality is here defined in terms of the ability to stabilize national employment and price levels.

However, as has been noted by many, Europe did not satisfy all the criteria either, at least not before the establishment of the euro. The world currency would be open to any country in the world, although Mundell clarified that its success would depend upon adoption by the large economic powers, who would contribute assets into a monetary fund, like a world central bank. On the other hand, artistic solutions often tend to be unrealistic.

They envision the evolu- tion of a monetary system with a Single Global Currency and overseen by a world bank. In his book, The Alchemy of Finance, George Soros called for the creation of a Single Global Currency, together with an international central bank. In fact, at this point it is a concept with so many benefits that it requires little advocacy. Also, he seems to have believed that a Single Global Currency required a higher degree of world government than is necessary.

A mone- tary union requires only an agreement among peoples or nations to vest responsibility for the issuance and stability of their money in a non-national entity, usually a central bank. Other governmental agreements may be helpful, but are not required, as can be seen with the range of integration among current monetary unions.

As could have happened with the euro, which was consid- ered at one point to be utilized in parallel to the retained national currencies, it may be that nations or cities or corpora- tions want to issue or retain their own currencies in parallel with the Single Global Currency, and that will be up to the issuers.

Panama uses two currencies: the US dollar and the Panamanian balboa. During the implementation of the euro, it was used in parallel to the legacy currencies. Bank statements were issued to customers in both currencies, and customers could write checks and make other payments in euros, but not with cash.

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